Ohio-based Ceres Group, Inc. reported net operating income of $4.1 million ($0.12 per share), excluding $0.4 million ($0.01 per share) from net realized investment gains for the fourth quarter ended Dec. 31, 2003.
This compares to net operating income of $1.9 million ($0.06 per share) for the fourth quarter of 2002, excluding $0.4 million ($0.01 per share) from net realized investment gains and a loss of $9.8 million ($0.29 per share) from discontinued operations related to the sale of Pyramid Life Insurance Company. Net income was $4.5 million ($0.13 per share) in the fourth quarter of 2003, compared to a net loss of $7.4 million ($0.22 per share) in 2002.
For the full year 2003, the company posted net operating income of $15.4 million ($0.45 per share), excluding $1.2 million ($0.04 per share) from net realized investment gains, $2.7 million ($0.08 per share) related to a decrease in the valuation allowance for deferred taxes, and $3.6 million ($0.11 per share) from discontinued operations. This compares to net operating income of $2.2 million ($0.06 per share) for 2002, excluding $1.5 million ($0.04 per share) from net realized investment gains, $1.5 million ($0.05 per share) from a special charge related to the retirement of the company’s former CEO, and a loss of $4.5 million ($0.13 per share) from discontinued operations. Net income was $22.9 million ($0.67 per share) for 2003, compared to a net loss of $2.4 million ($0.07 per share) in 2002.
“We finished 2003 in a strong financial position, exceeding our goals and dramatically improving our balance sheet,” said Tom Kilian, president and CEO of Ceres. “Both business segments showed positive earnings, expenses were in line with our revenues, and we enhanced our management team and board of directors.
“Our strategies in the Senior and Medical segments have proven effective in balancing our results,” added Kilian. “Earnings in the Senior Segment remain solid and this segment is now poised for growth in 2004 and beyond. At the same time, we continue to selectively market in our Medical Segment to maintain stable results.”
Ceres reports its financial results in two primary business segments: Senior and Medical. For all periods presented, the segment results exclude the discontinued operations of Pyramid Life Insurance Company, which was sold on March 31, 2003.
Senior Segment (Medicare supplement, long-term care, dental, life insurance, and annuities)
Pre-tax operating income for the quarter was $6.4 million, compared to $2.0 million in the fourth quarter of 2002. For the full year, Senior Segment pre-tax operating income totaled $19.0 million, compared to $14.2 million for 2002.
Benefits, claims, losses and settlement expenses in the Senior Segment were $30.9 million, compared to $33.8 million in the fourth quarter of 2002. The Senior Segment benefit and claims loss ratio was 69.9 percent, compared to 79.3 percent in the fourth quarter of 2002.
For the full year, the Senior Segment benefits, claims, losses and settlement expenses were $127.5 million, compared to $129.2 million, with the benefit claims loss ratio at 73.7 percent and 76.0 percent, respectively. The improvement in the Senior Segment results for 2003 was due primarily to the reduction in Medicare supplement loss ratios from 69.8 percent in 2002 to 67.1 percent in 2003.
“Pre-tax operating income in our Senior Segment increased 34 percent for the year, and we are optimistic about the growth potential for this historically predictable and profitable segment,” continued Kilian. “Our strategy is to expand this segment by emphasizing competitive markets, working with select distributors, exploring new marketing relationships and increasing our agent base. We will continue to concentrate on our primary product Medicare supplement, and increase our market reach through new plan offerings and portfolio refinements. I believe that we have the financial strength, technology and superior administrative platform to support this expansion.”
Medical segment (catastrophic and comprehensive medical plans)
Pre-tax operating income for the quarter was $0.9 million, compared to pre-tax operating income of $1.8 million in the fourth quarter of 2002. For the full year, Medical Segment pre-tax operating income totaled $8.3 million, compared to a pre-tax operating loss of $7.1 million for 2002.
Benefits, claims, losses and settlement expenses in the Medical Segment were $51.6 million, compared to $68.9 million in the fourth quarter of 2002. The Medical Segment benefit and claims loss ratio was 75.1 percent, compared to 74.7 percent in the fourth quarter of 2002. The fourth quarter loss ratio reflects the seasonal nature of claim payment patterns for this product line and is consistent with management’s forecasted levels.
For the year, the Medical Segment benefits, claims, losses and settlement expenses were $226.2 million, compared to $291.8 million in 2002, with the benefit claims loss ratio at 74.1 percent and 78.9 percent, respectively.
“We made substantial progress in turning around our Medical Segment results,” said Kilian. “The key to this improvement is our selective approach, or niche marketing, which focuses on states, producers and products with the greatest profit potential. Overall new sales in the fourth quarter improved over the same quarter a year ago, and sales of our group medical products increased for both the quarter and the year. We continue to expand on marketing relationships with experienced producers, as well as product and pricing refinements to remain competitive in this challenging market.”
“In 2004, we will continue to expand our Senior Segment and focus on target market opportunities in our Medical Segment,” noted Kilian. “The Senior Segment is positioned financially for growth, and we are now actively marketing senior products in both of our major subsidiaries. In addition, the Medical Segment loss ratios improved, and our claim inventory levels remain at historic lows. Over the next two years, one of our strategic objectives is to balance revenues equally between these two business units. This will offset the unpredictability inherent in major medical with the more stable earnings and higher returns on invested capital available on the senior side.”
As previously stated, the company expects to achieve net operating income per diluted share of $0.53 for 2004, an increase of approximately 18 percent over 2003. This is based on the company’s prospects for growth in the Senior Segment and continued profitability in its Medical Segment. Net operating income excludes certain items that, in the opinion of management, are not indicative of overall operating trends. In the company’s results for 2003 and its outlook for 2004, net operating income excludes the impact of net realized investment gains, the reduction in the deferred tax valuation allowance, and the results of discontinued operations.
Was this article valuable?
Here are more articles you may enjoy.